Amazon to tax sales in Arizona

Online retail giant Amazon .com has agreed to collect sales tax on its Arizona transactions as part of a legal settlement that could pump millions of dollars each year into state coffers.

Amazon disclosed Friday that it reached an agreement with Arizona that will require it to start collecting taxes on the physical and digital products it sells beginning next year.

The Seattle-based company also agreed to pay Arizona an undisclosed amount to settle the state’s claim that it owed $53million in back taxes from 2006 to 2010.

Company officials described the undisclosed settlement amount as “immaterial.”

Consumers can expect to pay taxes on all Amazon purchases, from the top-selling Kindle Fire e-reader to video games, toys, books and other merchandise.

The state sales-tax rate is 6.6percent.

Arizona’s settlement is the latest blow in Amazon’s ongoing fight to resist state sales-tax collection efforts.

The deal between Amazon and the Arizona Department of Revenue was reached in September but was not made public until Friday, when the company made its quarterly filing with the Securities and Exchange Commission.

Arizona officials said Friday that they were not able to release details of the settlement until Amazon made it known, because of confidentiality rules involving taxpayers.

Gov. Jan Brewer is pleased that the settlement will create an equal playing field for all businesses operating in the state, spokesman Matthew Benson said Friday.

“The agreement allows the state to settle this dispute without litigation while securing partial payment and establishing that Amazon will be collecting and paying taxes going forward,” Benson said.

Based on the $53million in taxes and interest Arizona claimed was owed by Amazon, the retailer could funnel more than $11million a year in sales-tax revenue to the state.

Benson said Friday that Brewer has supported the state’s effort to collect sales taxes from Amazon.

In its SEC filing, Amazon said it will begin collecting sales tax on physical products in February and on digital products and services in July.

“While we continue to believe the assessments were without merit, in September 2012 we entered into a settlement with the state of Arizona,” the company’s filing said.

That came as the company announced it would add 400,000 square feet to its distribution center at 6835 W. Buckeye Road in Phoenix, expanding the online retailer’s footprint in Arizona to more than 3million square feet.

“We are committed to growth in Arizona because Governor Brewer and other state officials have demonstrated their commitment to Amazon jobs and investment,” Paul Misener, Amazon’s vice president of global public policy, said at the time.

When the state Revenue Department hit Amazon with the $53million bill, Brewer would not publicly take a position on the state’s collection efforts.

At the time, Benson said that Brewer did not take positions on decisions affecting individual taxpayers.

Arizona’s brick-and-mortar retailers have long complained that online retailers that don’t collect sales taxes have an unfair advantage.

“We are thrilled that Amazon will be collecting the tax on sales to Arizona customers and will become a business that is investing in Arizona alongside the brick-and-mortar retailers,” Michelle Ahlmer, Arizona Retailers Association executive director, said in a statement on Friday. She said that retailers thrive on competition and will now have a chance at “a fair fight.”

Association members “have been anxious for a resolution to taxation inequity, and we are grateful that a settlement has been reached,” Ahlmer said. “This is good news for the state of Arizona.”

Amazon has been battling efforts by physical retailers to create federal legislation that would tax online vendors.

For years, Amazon has used a 1992 U.S. Supreme Court decision to avoid paying state taxes from online or mail-order sales in states where the company has no physical presence. The company also has adopted strategies to get around state sales-tax requirements even in states where it as so-called “fulfillment” or distribution centers.

At least seven other states have successfully challenged the retailer.

Last year, California settled a protracted fight with Amazon, which began collecting sales taxes last month.

In September 2010, Texas sent Amazon a $269million bill for uncollected sales taxes from December 2005 through December 2009.

The company settled with Texas in April and began collecting sales taxes there in July. Amazon also agreed to make an undisclosed payment to Texas and meet capital-investment and job-creation commitments to the state.

Amazon has reached sales-tax collection agreements with five other states.

It continues to maintain that the U.S. Supreme Court restricts states’ abilities to impose sales taxes. “However, an increasing number of states have considered or adopted laws that attempt to impose obligations on out-of-state retailers to collect taxes on their behalf,” the company said in its filings.

The company said it would support a federal law that would enact a nationwide standard for sales-tax collection.

“More than half of our revenue is already earned in jurisdictions where we collect sales tax or its equivalent,” the company said in filings. “A successful assertion by one or more states or foreign countries requiring us to collect taxes where we do not do so could result in substantial tax liabilities, including for past sales, as well as penalties and interest.”

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